Michael Olenick: Shocking Economic Insight – Mass Foreclosures Will Drive Down Home Prices

By Michael Olenick, creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha). You can follow him on Twitter at @michael_olenick or read his blog, Seeing Through Data

“A lie told often enough becomes the truth.”
— Vladimir Lenin, adopted and reused by Joseph Goebbels

Every doctor knows the fastest way to stabilize a patient is to kill them, because there is nothing more stable than death. While that solution may be fast and inexpensive it’s also sub-optimal. Yet pundits repeatedly posit the fastest way to end the housing crisis is through mass foreclosures. In a strict sense they’re right, that will achieve stability, though so will other policies calibrated to cause less micro and macroeconomic damage .. and a lot less human suffering.

Honest economists explain their reasoning, which is that there is a need to find a market bottom. They argue that in a healthy market sellers should not compete with REO properties and buyers need not worry an oncoming glut of foreclosures will drive down the value of their house. These economists, who remain in the minority, usually preface this is a lousy solution albeit the only one they can think of.

More common are bankers and economists who paint a rosy picture at the notion of throwing millions of families to the street, and millions of homes to the market.

“Once distressed inventory comes down and all of a sudden there’s not enough homes, you’re going to have a real bounce,” said JP Morgan Chase CEO Jamie Dimon in a recent interview.

Dimon surely knows the 2010 Census reports 131.8 million residential housing units for 312.9 million people, including about 17 million empties, so I’m not sure where his housing shortage comes from.

Dimon’s bank is sitting on a powder-keg of $87.6 billion of mostly worthless second mortgages at the end of Q3, 2011, according to the FDIC, so I can see why he’s playing cheerleader for a housing renaissance. But treating people like chumps, by encouraging them to buy in this broken market, crosses the line from puerile to patronizing.

If Dimon’s bank is genuinely bullish on housing then let them show it by dramatically ratcheting up their non-GSE lending. It will be interesting to see how JPM investors react to what I’m sure will be Dimon’s forthcoming announcement that JP Morgan Chase plans to lower credit-standards, increase private mortgage lending, and retain the loans on their own balance sheet.

Every argument housing cheerleaders advance is easily debunked.

Dimon argues household formation is increasing. I argue that’s irrelevant because the new couples do not qualify for home loans. Bloomberg reports that student-loan debt is approaching a crippling $1 trillion, preventing young people from qualifying for mortgages.

Bloomberg’s story focuses on a pharmacist with $110,000 in student-loan debt and a steady job that pays $125,000 a year, but who doesn’t qualify for a mortgage. It isn’t only employed professionals: the Bloomberg article goes on to note the Federal Reserve reports the number of 29-34 year old’s who qualified for a first mortgage declined from 17 percent ten years ago to 9 percent in 2009-2010. That is, young people are forming rented households.

This meme, that it’s a great time to buy a house, is relentless.

In a Bloomberg story along the same lines, Potomac Gap Shows Court Foreclosures Delay Housing Recovery, former Fannie Mae chief economist Thomas Lawler compares Maryland and Virginia house prices to argue expedited foreclosures increase home prices.

Asking Fannie’s former chief economist his thoughts on housing is akin to asking Francesco Schettino, Captain of the domed Italian cruise ship, his thoughts on maritime safety. Let’s ignore that though and focus on Lawler’s conclusion, which the data doesn’t support.

Lawler argues that Virginia and Maryland have virtually identical characteristics, yet that house prices in VA rose .8 percent last year while MD prices fell 3.6 percent. Lawler attributes this to the fact that MD is a judicial foreclosure state — where foreclosures require court approval that move through the system slower — whereas VA is a non-judicial state, where banks can simply auction a house after a default.

I have a simpler answer: house prices in MD ran up considerably higher than those in VA during the bubble so prices in both states are now adjusting towards the mean.

Specifically, according to the FHFA’s Housing Price Index (HPI) data Maryland house prices rose 17.7% higher from Q1, 2000 to Q3, 2007, when prices in both state’s peaked. Prices in MD are still 10.8% higher than those in VA, even though, by Lawler’s reasoning, they should be the same.

If anything, the data suggests judicial foreclosure is dampening home price declines in MD, by slowing foreclosures and the drag they place on home prices.

Less foreclosure inventory in judicial foreclosure states, thanks to slower foreclosure processing, reduces supply and stabilized home prices is a simpler explanation, though it’s seldom explored. I’ll refer to it as the Linda Green House Price Stabilization theory.

Obviously, people cannot continue to live in houses they are not paying for forever. But crafting public policy to figure out how to work with these people, which has the least impact on both the economy and the families involved, requires an honest and forthright dialog that just isn’t happening.

My own home state of FL is an economic disaster zone thanks largely to foreclosures and other housing related dysfunction. I often find myself spending the evening discussing housing finance.

It is not uncommon for those current, or with paid-off houses, to launch into a harangue about their irresponsible neighbors and demand that they’re thrown to the street immediately. But when I ask these people to quantify how much they’re willing to pay to punish their neighbor the answer is always zero.

I explain there are two options. One option involves modifying their neighbors mortgage, arguably giving their neighbor a windfall but limiting their own home price decline to no more than 10-percent. The other option involves throwing their neighbor to the street, decreasing the person’s home value by more than 10-percent. Nobody has ever opted to throw their neighbor out if it will personally cost them anything.

Dimon argues “indiscriminate blame of both (economic) classes denigrates our society, destroys confidence .. and damages us.” I agree, though argue the relentless “break the borrowers bones,” theme, combined with less than honest discourse about economic reality, is more destructive than frustration-fueled barbs launched towards those like him who pocketed a $21 million paycheck last year while relying heavily on corporate welfare.

Depending on one’s understanding the 50-state Attorney General settlement is worth somewhere between about $5 and $40 billion. Let’s use the higher number: we still have about a half trillion gap to put a long-term floor on the housing market. It’s time for an honest, open, fact-based national dialog about how to make that happen.

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111 comments

  1. John Regan

    Honest and open dialogue. Fine. People who don’t have jobs can’t pay mortgages, student loans, or anything else. They’re using their income, if any, for food.

    It’s great that Olenick has come up with a retort for the peopla who demand that all the “irresponsible” borrowers be put out on the street. But an honest an open dialogue has to begin with the truth that the entire economic structure has reached the debt saturation point. Piecemeal reductions for this and that purpose are hopelessly ineffective, first because you can’t pick and choose which debts are going to be reduced or canceled without screams and tirades from anyone who is left out; and also because reductions, rather than cancellations, will simply ratchet down everyone’s income until the reduced amounts are just as impossible to meet as the current ones.

    Honest and open: in a debt based system, debt saturation is a system failure and collapse. People wonder when the collapse is “going to happen”. It has already happened.

    Time for a new system.

    http://strikelawyer.wordpress.com/2011/12/27/saving-the-world-revised-edition-part-ii/

    http://strikelawyer.wordpress.com/2011/12/27/saving-the-world-revised-edition-part-iii/

    And the madness has to stop, immediately:

    http://strikelawyer.wordpress.com/2012/02/19/madness/

  2. Jim in SC

    I keep on expecting a real washout in home prices. We haven’t gotten anywhere near Depression Era pricing in housing. For rental housing, the Depression model price was two years’ rent. We’re currently at about ten years’ rent.

    1. R Foreman

      They’re keeping homes off the market. Plus you’ve got this sea of liquidity being pushed out by the Fed and Treasury, much of which is going to buy properties. Prices don’t in any way reflect supply/demand dynamics for real property. Demand is near zero (measured as what people can afford), and supply is enormously large. This is the biggest confidence game in the history of the world, and your elected officials plus vast minions of staffers are all the con-men. They’re trying to reinflate the ponzi bubble, after the marks have been made aware of the game. Best of luck to them, since that has never worked, ever in history, to my knowledge.

      1. ambrit

        Mr. Foreman;
        I second your observation. The same dynamic is at play here in the Deep South. My household is staying in cash for the present, what little we have. People selling won’t even discuss offers yet, even when the offers are near break even for them. And just look at all the commercial loans getting ready to reset this year!

  3. Mark P.

    ‘Dimon’s bank is sitting on … $87.6 billion of mostly worthless second mortgages at the end of Q3, 2011, according to the FDIC’

    Excellent. I hope his bank gets to eat a large chunk of that before he can dance away into retirement.

  4. Rotter

    I agree with John Regan. I saw an Al Pacino mob movie yesterday “Donnie Brasco”, where a room full of low budget gangsters are bloviating about a possible move to Fla. (this is the early 70’s) and one of them says of NYC “youve got 15,000 wise guys all chasing the same crooked nickle”..thats the American economy cica 1980-now.

  5. Jon

    Speaking as someone who’s been renting in Silicon Valley since 1997, I’d be perfectly happy to see housing prices fall far more than 10% around here. Especially since price:income ratios are way out of line historically.

    1. bob goodwin

      When one questions the wisdom of a market clearing, you have to ask what is the preferred alternative? Government propping prices up? If government is the preferred solution to mispriced markets, why not fix prices on things beyond housing? What is the correct price government should set? Too high to help the encumbents, or too low to help the young?

      The root cause of the current foreclosure debacle is too much debt extended earlier in the cycle. Did Government play any role at this stage?

      1. Skippy

        “Did Government play any role at this stage?”… Bob G.

        Sure enough Bob, best dang boverment money can buy.

        Skippy… you know the Nascar suit sponsor gag for polies… I’d prefer a Mini Pearl Hee Haw price tag on everythang… thatin’way we could get true price discovery… Heck why not just turn the congrass into a 5 & dime, hold auctions on C-span… use Texas as an example… it was going so well till that one critter started slapping checks down on the members tables before a vote… genteel manners right out the widow…. youngans shezzz…

        PS. good to see you!

        1. bob goodwin

          Thx Skippy for the kind words. I have been working 80 hours a week solving world hunger, inventing a replacement for fossil fuels, and constructing a new social order. So have had little time to post. Although it is one of my favorite things to do.

      2. F. Beard

        What is the correct price government should set? bob goodwin

        That’s where a little thing called “justice” come in. If one assumes that all credit debt is illegitimate since credit is a form of counterfeiting then one solution would be to nullify all that debt. However, credit creation cheats non-debtors too so a universal bailout, including non-debtors, is more just.

        So:

        1) Forbid any further counterfeiting – so-called “credit creation”. This would be massively deflationary by itself as existing credit is paid off with no new credit to replace it.

        2) Send bailout checks of new fiat to the entire population, including non-debtors, metered to just counter the deflation from 1) above.

        With no change in the size of the total money supply (reserves + credit) then neither price inflation nor price deflation should be expected.

        The above is a painless (excluding the shame of bankers) way to move to 100% reserve banking .

        1. bulfinch

          I think someone else has proffered this solution or something like it on here or elsewhere before. It sounds nice on the surface and I sense that your heart is in the right place; however, the idea of mass relief is, if not impossible, riddled with complications — too many to enumerate in a comments section.

          Just for starters, though, there would be immediate problems with domestic purchasing power; after all, if you make every man woman and child instantly solvent overnight, it may serve to disincentivize certain sectors of the American labor force; while it might provide some leverage at the outset, the sudden raise in compensation required to entice a newly and suddenly in-the-black workforce back to toil would also mean inflation for everyone domestically who depends upon these goods/services — thereby cancelling out much of the gains realized by your mass relief. And who gets what? To actually develop an effective sliding scale for establising to whom this relief would go to and how much based upon what variables and then adminstering said funds would not only be an administrative nightmare, but also a breeding ground for fraud.

          I am also uncertain how imposing a ban on productive credit creation is a good idea in any modern industrialized economy.

          1. F. Beard

            1) Everyone would receive equal “restitution” checks. No costly administration is needed.

            2) The “restitution” would be metered – not given in a huge lump sum.

            3) Credit creation would be replaced with honest lending with true market driven interest rates.

        2. bob goodwin

          History has shown that Jubilee’s are a common solution to debt bubbles. They are not fair to non borrowers. But debt bubbles are not fair either. A jubilee is often a good object lesson to lendors, and that lesson takes several generations to forget.

          1. John Regan

            Exactly. There’s no perfect solution here. The unfairness of a debt jubilee is that it doesn’t directly benefit non-borrowers. But it doesn’t hurt them either. And they would in fact, be hurt very badly if there’s no jubilee because the social consequences of that will be horrendous.

            So there’s an indirect benefit.

          2. John Regan

            @F. Beard: You’re right I shouldn’t do that. I was thinking of my own idea, not his. I like Steve very much and am maintaining an open mind about his plan, but my worry is that it will not have the desired effect for debtors, or perhaps that it will be highly inflationary because it will flood the economy with new spending money that will be concentrated in the hands of a very few people (i.e., those who had little or no debt. I have one argument with it in principle, too: I think this is a law problem, not an economics problem, and I believe people really need to use their constitution in a contructive way, which I think would reinvigorate both the rule of law and the capacity for self government. Steve’s proposal more or less continues the idea that central bank policy and activity and tinkering will save the economy if it is properly done. I just don’t think there’s any way for it to be properly done.

            But better Steve’s idea than nothing, or more of the same from the political leaders, which is a disaster. I think the matter is urgent, Steve’s idea is going to be easier to implement and less disruptive initially. Long term I’m not so sure. But all that aside the PTB will probably be just as hostile to his idea as they would be to mine. And one difference is, he needs the PTB to go along. With the constitutional idea they don’t matter. The super-majority – the 99% – can trump the PTB definitively. And they should, for once. It will be good for everyone.

  6. Conscience of a Conservative

    Don’t agree here at all. For many families renting is cheaper than continuing to own the home, plus the foreclosure can be seen as relief from an under-water mortgage. Everyone talks about home affordability, well it’s time we stop propping up prices and coming up with creative finanicng that is doomed to fail as a way of making homes cheaper. If we stop the subsidies and allow prices to prices to find their natural level we’d be much better off, and foreclosure is a cleaning process. The big issue that has prevented this from happening is sloppy and illegal foreclosures, but absent that, they we need to clear the system. The anolog to the pateint and death is also wrong here(Who is the patient, the market, the home owner the bank? Supply and demand are basic concepts that provide important price mechanisms. lets stop inferfering with that)

    1. F. Beard

      You ignore that the counterfeiting cartel, the banking system, drove homeowners into debt via negative real interest rates in housing. Their options were to borrow and buy or be left behind forever by those who do borrow. It’s called a “Tragedy of the Commons” situation.

      Why do you claim to have a conscience if you neglect justice?

      1. Conscience of a Conservative

        Justice would be to go after mortgage fraud and put the fear of law to those that engage in deceptive practices. Right now we’re engaging in negative real interest rates which punishes savers, so having trouble seeing why now this is ok, but back in 2004 it was bad.

        If a buyer knowingly took on bad debt then that person bears some responsibility, just as the banker who manipulated the fico and income numbers to get the loan done. The only difference is one is criminal and the other stupid.

        1. Lambert Strether

          Why is the mark just as guilty as the con artist? And how on earth does one go about quantifying “knowingly”? And after we collect all the anecdotes, how many of the anecdotes are planted by paid bankster shills?

          It’s a systemic problem, equivalent to a Sopranos-style bustout on a global scale. Yeah, maybe some of the marks did business with the mob with open eyes, and others didn’t. The focus should be on the mob, not the marks, because to fix the system you need to see who’s got the power in it.

          A jubilee would win a lot of votes for a candidate who was courageous enough to work it into a platform. And who didn’t go up in small planes.

        2. John Regan

          Conscience: this is really just doctrinaire and thoughtless dogmatism at this point. You can’t have a “cleaning process” that makes, oh, 50 million people homeless. That’s more people than were displaced in Europe during WWII. People have already doubled up and doubled down so much we’re looking at this:

          http://strikelawyer.wordpress.com/2012/02/16/misallocation-of-resources/

          In a lot of ways it doesn’t matter anymore who is at fault, but as a practical matter unless something is done it’s people on the bottom who will suffer all the worst consequences, because the only thing that matters to the political powers that be is, of course, political power. It should go without saying, but probably doesn’t, that this is an unconscionable and atrocious result.

          The people of the United States need to get control of their constitution again. I hold out some hope that the Occupy movement will trend in that direction, but it’s a longshot. The alternative, though, is a long, drawn out attrition of human capital that will still have the same end – violent revolution – but the slowness of it will obscure cause and effect for most people.

          That is one of the chief mechanisms, by the way, with which the current monetary regime functions: slow everything down and drag it out so as to confuse cause and effect so that people can’t properly react. Also known as kicking the can down the road.

        3. Amateur Socialist

          Thanks for that insight CC. We’ll be back with more “Blame the Victim” after these messages…

    2. F. Beard

      Also, how meaningful is the concept of “supply and demand” when bankers can create money from “thin-air”?

    3. Michael Olenick

      I agree w/ a lot of what you’ve written though you’re ignoring that the mortgages, the contracts, are only being collected at par because of the bailouts. But for the bailouts they would have been liquidated at very low rates — probably <$.10/dollar if there was a system-wide collapse in '08 — then vulture investors would have purchased them and renegotiated them.

      There's a strong argument this would have caused a massive Depression, like it did the last time it happened, but the last time we didn't have the FDIC to protect middle-class savings; this time we did.

      I understand why economists weren't willing to roll the dice with the world economy based on theory, but I can't pretend that supply-and-demand haven't been affected by the bailouts.

      You can't be half-pregnant and you can't have a half-socialist economy. Except for FHA and VA loans, a relatively tiny portion (Fannie & Freddie were private), those were private contracts "saved" from collapse with public money. Part of an honest dialog is recognizing that.

      Do I know what the answer is? Honestly .. no. I have some ideas, and talk to others. But I do know that we have to recognize these basic realities if we're ever to return to reality.

      Michael.

      PS: The patient is the economy itself, and the borrowers, and the lenders. Mass foreclosures may put a fast floor down, or may start a spiral of strategic defaults as prices spiral downwards. Just like we didn't roll the dice with bank liquidations we shouldn't blindly assume it will work out fine with mass home liquidations. It may .. or it may send us into a spiral where the market way overshoots the bottom.

      1. Clinteastwood

        If the market overshoots the bottom………..so what? That’s naked capitalism. I can’t believe the intellectuals who think they might be able to define the best thing to do in this situation. The truth is, no one knows. We’re going to just muddle through, no matter what anyone tries to do–ban-aids here, band-aids there. The best we can hope for is a leader who is honest and faces reality, who has wisdom and is not afraid to speak the truth, who has principles, a record on which he stands. Even should we happen to wake up to Ron Paul I’m not sure that would result in less pain. Debt is the problem. It’s not going away easily, no matter what. If you’ve done the wrong thing in the midst of all this fiat created out of thin air…….you are going to pay the price. The sooner we get on with it, the less pain.

      2. Pearl

        Michael, I used to think the way strategic defaulting would play out is that the financially more sophisticated underwater homeowners would realize they could rent a home equivalent to their own for less than half of their current mortgage payment–so they would walk away and become renters. (A “jingle-mail” sort of scenario that had the effect of turning over a property in a rather short period of time.)

        Now, however, I’m wondering if potential strategic defaulters stop making their payments only to realize that 100% off rent is even better than 50% off rent. Indeed, perhaps there is a pool of strategic defaulters who have been caught by surprise by how long they are getting to “stay put” (and under the radar) before their servicers or lenders even begin to squawk.

        (From what I seem to be seeing, though, I think the poorer people in the poorer areas (perhaps those with less complex financial profiles) are being forced out pretty fast.)

        But I’m certainly seeing something anomalous in the upper middle class suburbs of GA–I just can’t exactly put my finger on it. Perhaps the foreclosure flood in the upper middle class areas has not yet begun to show up in earnest. Perhaps the ramifications of delays in pushing out those who are well into strategic default just may not yet be showing up on our radar.

        (In reading over an old post by the Late, Great, Tanta from Calculated Risk, I was reminded that a servicer has some discretion as to when and against whom a foreclosure is commenced–it’s not necessarily set in stone.)

        I think this possible scenario may be quietly lurking about many of our upper middle class suburbs–and might be setting up to hit us like a ton of brick facades–just at the time many folks are starting believe that real estate prices have basically bottomed in the ‘burbs….

      3. Stupendous Man - Defender of Liberty, Foe of Tyranny

        My answer is to maintain, and enforce, the rule of law. That would, no doubt, be painful, but if that isn’t the answer that is applied then what sort of country will we have?

        Note my use of the term “would,” as opposed to the term “will.” Thus far I’ve seen no significant enforcement of the law, and am not inclined to believe there will be any. This, of course, leaves us with a country without rule of law, otherwise known as a banana republic.

    4. 2little2late

      Somewhere between your “….foreclosure is a cleaning process….” And your “….sloppy and illegal foreclosures, but absent that….” I started wondering whether you powder your wig before tea or after.

  7. F. Beard

    I explain there are two options. One option involves modifying their neighbors mortgage, arguably giving their neighbor a windfall but limiting their own home price decline to no more than 10-percent. The other option involves throwing their neighbor to the street, decreasing the person’s home value by more than 10-percent. Michael Olenick

    There is a third option – bailout the entire population equally, including non-debtors, with new fiat and slap leverage restrictions on the banks to prevent the problem from reoccurring.

    Why not propose that to your “responsible” neighbors? Think they would turn down some non-price-inflationary cash?

    And it’s not just my idea – Professor Steve Keen (one of the few to predict this mess) suggests it at http://www.debtdeflation.com/blogs/2012/01/03/the-debtwatch-manifesto/ (scroll to “A Modern Jubilee”).

    I weary of repeating myself. Moving that “Overton Window” thingy is a bitch.

    1. Skippy

      “I weary of repeating myself”… Beard.

      That… in a nut shell beard, is your problem.

      Its just dripping with shallowness, over blown perception of your self, White Savior Complex ( Otherwise known as beating your head against a wall… ) and to top it off, act like your offering is the *only* workable plan. Not one mention of the down side to it, consequences. All whilst pushing private remediable coupons as common stock (sales gimmick / your full of em), shrinking government down to a weak ineffectual entity and straighten private sector control over the population and visa vi the planet.

      Toss the bastards out of office that enabled this epic fraud and if they can not be budged (vote rigging, lobbyists, citizens united et al). Turn our backs on the hole process and remove any validity it has, occupy is a move in that direction. Go check it out and see how you go, accept the feed back and learn.

      Skippy… your attempts media influencing is amateurish at best, and reflects a poorly conceived notion of your audience. Which on this blog, could be viewed as an insult, I know I am. Yahoo message boards will do that too ya.

          1. Skippy

            “was just pointing out that (humanly speaking)those Australian Aborigines won’t be much use when it comes to saving the human race.”… beard.

            Skippy… more wild assumptions.

          2. F. Beard

            So if a killer asteroid is heading our way, the Australian Aborigines will be able to divert it? By what mechanism, pray tell?

          3. Skippy

            Are you saying El will divert it or that you’ll have alternative accommodation?

            Skippy… Really… asteroids, oblivion, is that your default, go to argument, when all others fail?

          4. F. Beard

            Are you saying El will divert it Skippy

            Possibly.

            or that you’ll have alternative accommodation? Skippy

            Yes, modern science and technology.

            Skippy… Really… asteroids, oblivion, is that your default, go to argument, when all others fail? Skippy

            I believe it’s a form of reducto ad absurdem. Aborigine culture has no possibility of saving us from extinction UNLESS you concede a Higher Power (ie God) that might do it for them.

          5. skippy

            My point, which was clearly made in past comments was the aboriginal beliefs 60,000 years of relative peace without destroying the environment. In countenance to your mob (and others) nary 3,800ish, of which, you once use as a measuring bar of it’s validity and the endless well documented destruction of the environment and constant wars.

            Selling? Your selling an ideal, as if you didn’t know and being coy isn’t evidence against it. One that has no transfer mechanism to go from this place to the next, how will you implement any of this and on what time table? At this point in time its purely theoretical with out any supporting evidence, yet you pound the pulpit with certainty.

            Skippy… it comes off as telemarketing or religious TV offerings. Where is all the data? Where is the road? Why can’t people examine it in totality and decide by them selves, save teasing details out of its proponents. Why is the terminology so rife with obvious deception (common stock – redeemable coupons, etc. Why have you knot addressed any of my points of order, but, constantly deflect the conversation away from them?

          6. F. Beard

            My point, which was clearly made in past comments was the aboriginal beliefs 60,000 years of relative peace without destroying the environment. Skippy

            And my point is the universe (or even the Earth – them super-volcano thingies?) will eventually wipe us ALL out UNLESS God exists OR we have a sufficiently advanced (much, much beyond aboriginal) technology.

          7. skippy

            At this rate of destruction, we will preempt any of your doomsday scenarios. Abos made it 60,000 years, our mob is struggling in less that 4,000, do the math.

            If your so knowledgeable about natural events, then I think you would understand carrying capacity based activity’s, it uses empirical observation and not arm chair axioms. Hell it even puts the banksters in the playpen they belong. But, no, its better to crank up the herdygurdy of destruction all over again and continue planetary destruction – species survival as it excuse.

            And you’ll have to excuse my incredulousness at those that think this is just an accounting problem, moral – ethical dilemma, monetary, political problem. We live at the behest of a system that was rolling long before we arrived, that we *yet* have fully come to understand (only 10ish% percent of the oceans has been examined), that we have, in the shortest period in known planetary history, modified by our activity’s.

            Have you ever pondered that the inability of our aggressive consumerist activity’s is at odds with this age old system. That all the manufacturing offshore-ed had more to do with tort law and environmental consequences – legacy costs before the industry bought the regulators out right. (GW Bush in his first term ran on an environment platform, till he hit Washington and was read the right act, job, job, jobs). Since then regulation has returned to post recession 80s metrics. That service sector economics was only a ploy to invent keep busy work and a means to jin up some electrons of price which could be skimmed-off and converted to value, enrich a very few BSD in the name of national security (power) and pride? That they would knowingly go after the last remnant of western capitalistic marrow ie. property, in a last ditch effort to extend and pretend?

            Your plan only delays the reckoning, probably balloon this already epic bubble to new heights, possibly creating irreversible consequences, all whilst trying to achieve lift off?

            Look as someone that has spent decades in between administration, financial, OEM, commercial – residential civil – industrial – construction and a lark into CBD property development, on national – international scale, my eyes have seen a lot. Plus I ‘m still in contact with the kids that came in behind me and ex – peers and to top it all off my sons rugby club is a mishmash of every conceivable professional pursuit (eyes and ears thingy). I see the world as, it is, and not from some dusty tomb or free market ideological preference. I know from A to Z how these operations run, input out put, financial weighing, market share, future projections, managerial attitudes, national – cultural behavioral backdrops, the dirty deals. So when some economist, monetary theorist, political – ideological lackey pops off about some quick fix, simple solution with the conviction on the operator pushing the launch button from the bunker whilst humanity is strapped to the rocket…. well my first thought is why don’t they self test and repeatably push the envelope to critical failure and report back with the results… if they still live.

            When you say a lie often enough, it becomes mythology, then methodology, then political ideology and then self evident truth! Your an ideological purist of the free market stripe. This bail out is no better than the health industry solution. Yves suggest to turn the banks into utility’s of the people would be the least intrusive and would stabilize things till further improvements could be made by democratic process. Whats wrong with that? A balanced approach and not some wild knee jerk reaction with massive unintended consequences looming around the corner? You do have a handle on probability math right? Can I see you work out?

            Skippy… always couching in fear, the weakest, most vulnerable spot most humans have and a common tactic of psychological tool users with dubious agendas. 3,800 of paranoia can have that effect, last forty was been a hoot!

          8. F. Beard

            At this rate of destruction, we will preempt any of your doomsday scenarios. Abos made it 60,000 years, our mob is struggling in less that 4,000, do the math. Skippy

            It’s been a dangerous path we have been on (because our money system is unethical) but look on the bright side, we have passed the hump as far as resource usage/per human is concerned. Technology allows us to do more and more with less and less. Now, if we can only avoid WW III …

            If your so knowledgeable about natural events, then I think you would understand carrying capacity based activity’s, it uses empirical observation and not arm chair axioms. Skippy

            The failure of the predictions of Thomas Robert Malthus (and doom sayers since) should have taught people by now not to bet against Providence or if you reject that – human ingenuity.

            Hell it even puts the banksters in the playpen they belong. Skippy

            If a money system does not have adequate performance then it will not be stable either since people (and their governments) will not put up with economic stagnation indefinitely.

            But, no, its better to crank up the herdygurdy of destruction all over again and continue planetary destruction – species survival as it excuse. Skippy

            I was just pointing out that humanity is doomed UNLESS God exists OR we have a sufficient technology. Reverting to an aboriginal life style can’t save us or do you concede the existence of God?

            And you’ll have to excuse my incredulousness at those that think this is just an accounting problem, moral – ethical dilemma, monetary, political problem. Skippy

            I find it incredible that people think a money system rooted in fraud, based on counterfeiting and oppression of the poor and which killed 50-86 million people in WW II alone is NOT the problem. Even honest usury (as opposed to credit creation) is very problematic since it REQUIRES exponential growth just to pay the interest.

            We live at the behest of a system that was rolling long before we arrived, that we *yet* have fully come to understand (only 10ish% percent of the oceans has been examined), that we have, in the shortest period in known planetary history, modified by our activity’s. Skippy

            Nature is “red in tooth and claw” yet mankind will soon be producing lab grown meat. I call that progress at least from the viewpoint of reducing animal suffering.

            Have you ever pondered that the inability of our aggressive consumerist activity’s is at odds with this age old system. Skippy

            It’s usury that requires exponential growth. Common stock as money requires no growth at all yet allows it.

            That all the manufacturing offshore-ed had more to do with tort law and environmental consequences – legacy costs before the industry bought the regulators out right. (GW Bush in his first term ran on an environment platform, till he hit Washington and was read the right act, job, job, jobs). Since then regulation has returned to post recession 80s metrics. That service sector economics was only a ploy to invent keep busy work and a means to jin up some electrons of price which could be skimmed-off and converted to value, enrich a very few BSD in the name of national security (power) and pride? That they would knowingly go after the last remnant of western capitalistic marrow ie. property, in a last ditch effort to extend and pretend? Skippy

            People need money, not jobs. I advocate a universal bailout from all debt and a money form – common stock – that shares wealth and power rather than concentrates them.

            Your plan only delays the reckoning, Skippy

            Thanks for conceding that it delays the reckoning. That’s good in itself, isn’t it? Isn’t mortal life a delay of death? For whoever is joined with all the living, there is hope; surely a live dog is better than a dead lion. Ecclesiastes 9:4

            probably balloon this already epic bubble to new heights, Skippy

            How? Further credit creation would be FORBIDDEN – at least during the bailout period which might take 10 years or so.

            possibly creating irreversible consequences, Skippy

            Just restitution and ethical money creation is dangerous?

            all whilst trying to achieve lift off? Skippy

            No, the immediate aim is to not fall in a ditch. Think WW III will be easy on the environment?

            [snip]

            At this rate of destruction, we will preempt any of your doomsday scenarios. Abos made it 60,000 years, our mob is struggling in less that 4,000, do the math. Skippy

            We were warned about usury between fellow countrymen but we added to that sin the sin of counterfeiting (credit creation).

            [To Be Continued?]

          9. F. Beard

            So when some economist, monetary theorist, political – ideological lackey pops off about some quick fix, simple solution Skippy

            What I advocate is just restitution and genuine reform.

            with the conviction on the operator pushing the launch button from the bunker whilst humanity is strapped to the rocket…. Skippy

            My life is at stake too.

            well my first thought is why don’t they self test and repeatably push the envelope to critical failure and report back with the results… if they still live. Skippy

            Life is not a lab experiment. The accumulated wisdom of the human race must be our guide. That wisdom condemns our present money system.

            When you say a lie often enough, it becomes mythology, then methodology, then political ideology and then self evident truth! Skippy

            What lie? I advocate just restitution plus ethical money creation.

            Your an ideological purist of the free market stripe. This bail out is no better than the health industry solution. Skippy

            You neglect that the bailout would be combined with a ban on further credit creation.

            Yves suggest to turn the banks into utility’s of the people would be the least intrusive and would stabilize things till further improvements could be made by democratic process. Whats wrong with that? Skippy

            Credit creation involves taking purchasing power from some (typically the poor) and giving it to others (typically the rich). That’s what wrong with it.

            A balanced approach and not some wild knee jerk reaction with massive unintended consequences looming around the corner? Skippy

            Don’t mistake a traditional approach for a balanced one. The traditionalists, for example, would take us back to the “good” old gold standard.

            You do have a handle on probability math right? Can I see you work out? Skippy

            Hah! Economic prediction is notoriously bad yet I notice the worst predictors have ignored the moral aspects of economics.

            Skippy… always couching in fear, the weakest, most vulnerable spot most humans have and a common tactic of psychological tool users with dubious agendas. 3,800 of paranoia can have that effect, last forty was been a hoot! Skippy

            I want a peaceful, gentle, prosperous life for all.

          10. skippy

            Know wonder faith based religion is diminishing down here, it infects every single cognitive process by establishing false premise and running with it.

            “we warned about it”… beard.

            Skippy… the western worlds entire history is an extension of your foundation myth. 33,000 view points and counting in Christendom, why would it be so fragmented, whom is correct and whom is wrong, whom rampaged a planet and subjugated its people and their ancestral lands. Whom is the destroyer? Ethical, moral, loving, peaceful, gentle, prosperous life for all[!], my marsupial back side. History refutes every thing you say. WWII wasn’t that a family fight between Gawd head country’s and Japan reading the writhing on the wall (increasing inability to operate within its own sphere do to encroaching western business). Hence it was a gawd war from the start[?], in every possible metric? All that death is on your door step, why use it as a refrence, pride?

            PS. blast from the past, I share this view point in light of the 3,800 years of your mobs influence on human history.

            Beard, the broth in the Cannibal’s pot your sitting in, its unfounded belief and spiced with double standard meanings.

            What separates science from belief is that in science you must allow for the possibility that you are wrong. In the world of belief there is no possibility of being wrong.

            i on the ball patriot says:
            January 22, 2010 at 8:05 pm

            “Being a skeptic, I could never agree with the extreme forms of nihilism, but as an example of the nihilist-skeptic divide, though I am more properly a moral skeptic and thus could never be a strict moral nihilist (I am agnostic on the issue of universal morality and could never say for sure that it doesn’t exist), if pressed to choose a side, I would have to side with the non-existence of universal morality than the existence of it.”

            What exists is the struggle within organisms, and groups of organisms, between deception and perception …

            There is a fledgling (on the scale of human existence) ever growing dynamic aggregate earthly (not yet universal) human organism morality that can be found embodied in some of the externalizations of human organisms. Those externalizations — which are all deceptions — would include tribal codes, religious codes (Bible, Koran, etc.), various ‘rules of law’ etc. They regulate the cannibalization process of all organisms within the sphere of influence of the individual code and that are allied with the code. In their essence they profess a somewhat common ‘do unto others’ morality for organisms within the group.

            They also function, because they regulate behavior and viewpoints — and again as a fledgling development — as the dna of the onotron, the future externalized form of the current form of humanity.

            Deception is the strongest political force on the planet.

      1. F. Beard

        Not one mention of the down side to it, consequences. skippy

        Such as? What are the downsides to just restitution and ethical money creation?

        Yahoo message boards will do that too ya. skippy

        I wouldn’t know, I never commented there.

        As for my way being the only way, just how many optimum solutions can there be?

        But if you want less than optimum then just forbid any further credit creation and bailout the population equally till all credit debt is paid off. Forget the private monies. That still leaves the problem of usury but at least the counterfeiting would cease.

        But you oppose a general bailout, don’t you? Or even mortgage principle reductions?

        Let’s hear YOUR plan, skippy. I could use a good laugh.

        1. Skippy

          I have repeatedly informed you of my suggestions for an economic template, your inability to reference such easy available information from this site is a tell. If, as you have noted recently, age affected eye sight or any other milady afflicts you, there is a search box to the top right.

          It is strange that you have little working understanding of the financial mechanisms that loom ahead of us, CDO / CDS. That you seem to have only a cursory knowledge of how debt markets work and what that means globally, if any sudden changes occur. You seem to only have a handful of books from which to draw ideals and theory from and with little real world experience national or global. All with a heavy bias leaning to past beliefs which you have tweaked in a mangled polyglot of armchair thunkit ie. untested theory’s.

          To all of this you would opine that a general bailout would remedy the impending doom, or would it just kick the can down the road some more. First you would have to have a political mechanism to achieve it, do you have that? Then you would have to work on the social behavior context, good luck on generational change that would make Stalin proud, 100ish years of manufactured desire thingy. Then you would have to coordinate with every other country on the planet and agree on it, or point a gun to their head ( that’s ethical and moral, but, par for course ). Then you have the ecological damage this would bring, just when we need to slow down (empirical fact and not just AGW).

          For all your gnashing of teeth and proclamations of morality and ethics, your main thrust has always been private sector above citizens, and their government. Free magic money bail out sure, but, whom is gifted the most benefit. People get to keep their manufactured desire non performing consumable cough asset aka a house on a small patch of dirt, promised payed into benefits that are soon to be stolen and all that imaginary derivative fueled profit goes where? Umm… to buy up and privatize the last remnants of the commons? So in the end the citizens are left with their cracker boxes, yet, the private sector owns everything else, completely at it’s tender mercy’s. Come… on… beard. History bears me out on this one, slavery, child labor, unsafe work places, industrial exposure shortened lives, ecological devastation, extinction of animal and plant species, etc.

          Skippy… beard do yourself a favor and throw out all your monetary theory books, there rubbish. Go challenge your beliefs and finish Graebers book, heck for extra credit scan the index and research the original data, cross reference it, refute it or admit its safer in the cave of past thoughts imagined.

          PS. above…”And what is your assumption? That I oppose the Occupy Movement? Then wrong you are.” … Beard.

          Skip… grok much? The usage of *assumption* was directed at your earlier aboriginal statement and not Occupy. For you, to try and turn around and redirect a clear statement of intent ( “Go check it out and see how you go, accept the feed back and learn.”… skip ) and infer that you oppose it is absurd or willful gaming of what I said (you do a lot of that BTW).

          “I could use a good laugh”… beard. Pathetic juvenile response worthy of an individualist Randan, you didn’t fall far from the tree, hay beard. I can smell its infection from half way around the world. But hay, I think your resent increase in sucking up to everyone via pleasantry attached comments to other peoples comments, is a bit of marketing genius! Is that on your amigos advice, it is his professional forte, like two peas in a pod on the tubes.

          1. Clinteastwood

            These arguments are mind-numbingly irrelevant. If there happens to be a collapse (there’s certainly enough leverage for that) because no effective policy change is forthcoming (likely) you arguers will wish you’d concentrated on how you’re going to survive the collapse, not on what coulda, shoulda, woulda been possible. Have you checked the math lately? Reality is a bitch.

          2. ambrit

            Dear Skippy;
            Ouch! That hurt! I feel like I’ve been to an old fashioned Maoist “Self Criticism Session!” (That Harvard Bias Test assay isn’t helping the old ego much either.)
            Q: How many economists does it take to screw in a light bulb?
            A: g(z)=z[squared] + c

          3. Skippy

            “These arguments are mind-numbingly irrelevant.”… Clint.

            The above comment was directed only to beard. If you wish to engage in supporting his assertions or picking them apart (which is what I’m doing), have a go. Although to blithely dismiss something of which you were not a part of in order to inform me of the stored potential evident before us, is well, absurd. None of us have a time machine.

            Your use of excessive negativity to score points is intellectually dishonest, are you pro or con beards theory?

            Skippy… It is a tell that in America that survivalist’s have been re branded to preppers, that’s a tell. And no longer just crazy para military sorts, but, middle – upper middle class folks – hole family’s and friends, fully kitted out IMO.

            “A beginning is the time for taking the most delicate care that the balances are correct.”

            “I must not fear. Fear is the mind-killer. Fear is the little-death that brings total obliteration. I will face my fear. I will permit it to pass over me and through me. And when it has gone past I will turn the inner eye to see its path. Where the fear has gone there will be nothing. Only I will remain.”… Bene Gesserit Litany Against Fear.

            BTW don’t worry about us down here, we look out for each other quite well. Always have and always will, comes from being so removed from it all, it’s an aussie thingy.

            Cheers.

          4. Skippy

            Jiǎntǎo, yes! In my case the wife serves that purpose, ouch.

            Skippy… Q: How many economists does it take to screw in a light bulb?… Ambrit.

            Now that’s a 6 pack meeting if their ever was one, hopefully the next morning memory would fail too.

          5. F. Beard

            But hay, I think your resent increase in sucking up to everyone via pleasantry attached comments to other peoples comments, is a bit of marketing genius! Skippy

            Thanks, but it is sincere. I’d rather have fun sometimes than constantly tread on the straight and narrow so I don’t mind a break or two.

            And what the heck am I selling, btw? I have yet to make a single cent off what I do on the Internet nor do I plan to in the future. Nor am I running for office or ever plan to.

            I sure wish you’d quit with the ad hominem or at least get a bit more accurate and relevant with it.

          6. John Regan

            The constitution is the political mechanism. I agree that a jubilee has many, many issues that have to be addressed; fortunately a constitutional amendment can address them.

            It’s not perfect. But there’s no perfect solution here. It should be obvious that the nature of this problem is debt saturation and that the only solution to that would be debt cancellation. I think we should take the opportunity to change the monetary system entirely and prescribe gold redeemability at the same time, but that is actually secondary in my mind to the jubilee. The jubilee is an immediate imperative. Gold redeemability is a longer term imperative.

          7. F. Beard

            Reality is a bitch. RawHide

            Reality in this case is just some unjust bookkeeping entries. It’s very odd we should endure Great Depression II and risk WW III over them.

    2. Hal Roberts

      You make so much sense on that one Beard I feel the same way,but I think the problem with that great idea is that the top percentile is making more money on the system the way it’s working now. A one time payment of say (50,000.?) is nothing compared to the 50,000.plus a year they are pulling in now due to the bail outs and leverage.

      1. Skippy

        For every action there is an equal and opposite reaction.

        Define the opposite reaction and the consequences of it. Sales people have a bad habit of avoiding full disclosure in order to meet personal desires, selfish desires. The lack of technical details readily available for introspection is woefully missing and those offered are only upon much too and fro. To add insult to injury, the terms and definitions are deceptive and when called out, changed to suit pacification, in a most begrudgingly way IMO.

        To further add subjectivity, the main proponents of this offering all lay claim to past affiliations of dubious quality, but, have now seen the light. Then come out of the wood work to buttress each others comments in a seemingly organic blog response, yet is not. This is born out on other blogs as well, same actors. And lets not leave out the excessive moralizing from the get go. Whether as an opening salvo or as a mechanism of counter argumentation ie. you must hate people, not to agree with me/us et al.

        Skippy… I call RAT, a big FAT Norwegian RAT. Probably stuck in some bulk carriers hold and forced to engage in telemarketing style disinformation campaign for their ration portion.

        Disclaimer, I have no bets either way it pans out, in the pot with the mob.

        1. Hal Roberts

          Skip
          Opposite reaction and the consequences : their will be a lot of Grown responsible investor who were speculating (gambling) on the markets that will have losses to contend with. They sought out this kind of a risk in the name of making a profit. The down side to taking risk in that way is they might lose and they knew it.

          Sales people avoiding full disclosure = Fraud see the justice dept. Ha We need a new one ,to many judges are invested and have something to gain or lose in the case.

          Lack of tech details : The money would go out to all with a legal social security card. Fraud would be punished by 7 years mandatory at a Federal prison. We are not responsible for foreign investment they can fix that with their own money with their own dollar, they have been doing that for a long time. I think they call that off the record debt.

          I worry more about the victims of this globalist wealth transfer ie the people who did not have one dime in their treasonous game of finance. I see this all as one big Con we(USA) put out enough money to pay for all those homes many times over.

          Mr. Stockmans idea to put funds in the hand of the little guy to reboot the system is excellent. Then small business would get going again. Trickle down is a Bush scam. IMHO

          1. skippy

            Hal,

            We cant go back, the past was a consumerist dream anyway, people that cling to it will only cause more pain.

            Just throwing money at this will not solve our problems, global problems. Singular national solutions, quite possibly could lead to every thing these types of solutions claim to address.

            Skippy… America created this problem, spread it globally, now wants to take the cowards way out and call it a program to help the little people out. Just to make my self succinct, in the last 40 years America has engaged in a global free market crusade. We know those that story ended. Glad I don’t live their anymore and don’t blame the worlds attitude to it, false advertising will do that.

  8. Max424

    re: $1 trillion in student loan debt

    What’s cool about student loan debt is it is not a bubble. Theoretically, the exponential student debt curve –that began its smooth takeoff in the Year Zero of our Lord, Ronald Reagan (1980), and is now heading vertically toward subspace– could forge beyond all the known (and unknown) universes and parallel universes, and then beyond that.

    The only thing that can stop this vertical curve to infinity; is either the mass suicide of a majority of the student debt carriers, or nuclear holocaust –which gets everybody.

    What I also think is cool; the parasites who are saddling young people with student debt are the same parasites who want to sell the young people McMansions, but can’t, because the the young people are now so deeply indebted to the parasites they can’t even afford to rent nightly floor space in a poor house.

    It’s quite a quandary for the parasites who are doing the debt saddling, but I have no doubt they’ll figure something out.

    1. mookie

      Hrm, I’m pretty sure that the lenders do have it all figured out. When the government fully backs some student loans, or when the lender can bundle said loans as investment-grade securities and trade them for cold hard cash, there’s no risk to the lender and no incentive to make realistic loans; after all, on those terms a loan is less a risky proposition to be undertaken with great sobriety than it is a license to print money and continue the endless wall street coke binge.

      …and so when tuition costs spike to cover massive six figure administrative and faculty salaries as the boomers cash out on the backs of the young, the lenders are more than happy to print even more money per borrower. After all, these student borrowers are getting a quality education – a substantial asset which they’ll be able to trade on and which will only appreciate in value, right?

      Does anyone have any information on the current size of the Student Loan Asset Backed Securities market? Is the government on the hook for most of it or will it fall on our pension funds?

      1. CautlinO

        If you think those tuition spikes have gone to faculty, you haven’t spent much time recently in college classrooms. All of my professors in the 70’s were tenured faculty or working on gaining tenure. Today, more than half the classes are taught by ‘adjunct’ faculty – poorly paid part-timers who often have to work at up to three universities to earn one full-time salary, have no benefits, no retirement and whose presence undermines the entire tenure system.

        And yes, that last is probably a feature.

  9. Ignacio

    I am not american but I find this post very interesting because in Spain we have a large scale Maryland-like problem. In Spain, foreclosures are always judicial and that imposes a limit to the annual number of foreclosures. Also, since we have different mortage rules (mortgages are backed by the property besides a personal warranty always), foreclosures are more damaging socially and less appealing for banks. As a consequence, home prices are beign reduced too slowly, then the recovery will take a very long time. Bank forbearance is common practice in the UK according to the Bank of England, and probably in Spain although there is no official recognition of this reality.

    As a consequence, there are less neighbours beign thrown to the streets (positive) but the housing crisis will linger for a long time ensuring many years of high unemployment (negative). So, for me the question is how to accelerate the transition to lower house prices without increasing dramatically the numbers of neighbours beign thrown to the streets. Who decides where is the bottom and how is it decided? How we manage bank losses?

    The real problem is that nobody wants to face those questions.

    1. ambrit

      Sr. Ignacio;
      I wasn’t aware that foreclosures in Spain were judicial. What level judges do this? Local or national? This might have an effect. (As in local judges being closer to those their rulings affect. The “All Politics is Local meme.)
      As for your last point, I get the impression that the financial sector actors are playing the “extend and pretend” game for all it’s worth. A short sighted and greed centred strategy, I admit. That seems to be the point. At this stage in the game some workable system for massive clawback might be the only way to insure continuity.

      1. Ignacio

        ambrit, foreclosure processes in Spain are held by judges depending on the Ministry of Justice. Effectively, the “extend and pretend” practice is very common in Spain.

    2. Lambert Strether

      Ignacio, do you know an English-written source for this Spanish material? It’s would be an interesting story to follow, especially because IIRC the indignados were going to focus on housing …

      1. Funny Gurl

        The important aspect is lien vs title theory, and generally how friendly the state is with banksters, realtorsters, financial rapists, etc. Ergo, Maryland is a place where the mob can do a quick snatch n’ grab job, and just like Florida, gets the blessing of Gov’mint corruption. Maryland may have a debtor prison in it’s future, the sociopaths have free reign.

      2. Ignacio

        Yes I know one. It is a recent report from McKinsey that Paul Krugman quoted recently to argue that the US has done part of the road to recovery while the UK and Spain have done nothing. McKinsey says that UK banks report about 4% delinquency rates (the number is not precise) and that the BofE estimates that delinquencies are about 16% (if I remember well) but banks are applying forbearance massively.

        Find the report titled
        “Debt and deleveraging: Uneven progress on the path to growth”

        at http://www.mckinsey.com/Insights/MGI/Research/Financial_Markets/Uneven_progress_on_the_path_to_growth

        Go to page 5. It says

        “UK banks have been active in granting forbearance to
        troubled borrowers, and this may have prevented or deferred many foreclosures. This may obscure the extent of the mortgage debt problem. The Bank of England estimates that up to 12 percent of home loans are in a forbearance process.”

        1. Ignacio

          Uppps! Sorry Lambert, you were asking about official forbearance data in Spain. Unfortunately I don’t know official data, but I know particular examples. Nevertheless from time to time I (and some friends of mine also do) search for information about this because I think it is a shame that both banks and the regulator do their best to hide the data. You can easily guess why, but in my opinion this strategy has not worked because foreign analysts do not give credit to spanish bank delinquencies data and this has also generated the perception that all that unpayable debt will somehow be passed to the public and resulted in high sovereign risk premia. Nevertheless, whenever I find a source I consider good enough I will send the text and the link to you (translated for free if it it in spanish).

          1. Ignacio

            Spanish media, bankers, regulator etc. buy the idea that in Spain, mortgages are the last thing that everyone stop paying. So, nobody covers that. Part of this idea comes from the fact that Banks ask for a 2nd guarantee and many mortgages have a guarantor to guarantee up to 20% of the debt. Traditionally one of the parents or other close relatives were the guarantors and they could even pay some installments when the borrower was not able to pay in order to avoid default. This has helped to create the myth that in Spain, mortgage delinquencies cannot climb as much as in the US or UK. Of course, as in the US, mortgage rules relaxed a lot during the bubble and very often there was not 2nd guarantor or he/she was a strawman. Moreover, many guarantors are as insolvent as the borrower.

            If you want data on spanish economy and good sources in english I can provide you with some of it. You can access me via email and ask more precisely what kind of data you would like to see and I will do my best. For instance, Banco de España has a lot of information, reports and data published in english. You can download hundreds of data sheets in their website. Data sheets (if you want to track time series) are in spanish but I can easily translate them and you can play with the numbers if you wish.

          2. Ignacio

            In a fistful of euros, Edward Hugh reports from Spain. I believe he is one of the best sources you can access.

            see:http://fistfulofeuros.net/

            There is an english website that reports on home prices in Spain. They have their own index and report on another index called rom Tinsa (an appraisal company) which is the best home price index in Spain.

            http://prices.kyero.com/

            There is also an english edition of the spanish NYT equivalent:

            http://elpais.com/elpais/inenglish.html

  10. ArkansasAngie

    Defaults are not bad.
    Crime is bad and it certainly should not pay.

    Let the prices go down to their economic value and people will be able to afford them.

    Don’t loosen credit requirements … that and criminals is what got us into this situation

  11. Jim3981

    Couple points:

    1) Much of the housing inventory where I live was built from the 1950’s-1970’s. Homes require alot of expense and upkeep. Many of these older homes are “tear downs” and are not priced accordingly. Many households can’t afford or see paying $500-700k for a house that needs to be torn down or completely remodeled.

    2) The zombie banks are choking off a housing recovery.I am willing to put down 20-50% to buy a home in some areas, but don’t have access to a loan because of a previous default. All banks seem to lend on Frannie guidelines which does not allow a default on ones credit report.

    Why are no banks stepping in to lend to able buyers with large down payments on cherry picked deals? Seems to me it is the zombie bank securitization model cutting off loan demand.

  12. Mike C.

    Home prices will become affordable when they cost 2.5x household income and most people are required to put 25 percent down minimum. Until we get there there is very little to discuss.

    Oh and speaking of bottoms…there should never be any inflation in pricing at all. Inflation is by its very nature excess liquidity entering the economy… Ie money the economy does not need. Think about how capital formation occurs and what inflation really is.

  13. financial matters

    “”Today the world’s central banks are extending billions of dollars in computer-generated money to bail out their cronies, but these loans are just buying time, without restoring homeowners to their homes or preventing abandoned neighborhoods from deteriorating. So who is left to save the day? If Congress were to issue $3.77 trillion to fill the gap between purchasing power (based on productive full employment) and GDP, it could use one quarter of this money to buy defaulting mortgages from MBS holders, and it would still have plenty left over to meet its budget without levying income taxes. Adding a potential $1.7 trillion or more from a tax on derivatives (to help ferret out fraud here by creating greater transparency) would provide ample money for other programs as well. After reimbursing the defrauded MBS holders, Congress could dispose of the distressed properties however it deemed fair. To avoid either giving defaulting homeowners a windfall or turning them out into the streets one possibility might be to rent the homes to their current occupants at affordable prices, at least until some other equitable solution could be found. The rents could then be recycled back to the government, helping to drain excess liquidity from the money supply.”” (Web of Debt)

  14. hello

    shocking economic insight #2–the destroyed balance sheets (and smaller households, significantly due to aforementioned $$$) of Gen X/Y will dampen home demand well into the future.

  15. Stiff Lipperman

    Thanks Michael for this analysis. This also is an admirable well meaning statement:
    ” that will achieve stability, though so will other policies calibrated to cause less micro and macroeconomic damage .. and a lot less human suffering.”

    Consider US foreign policy, where some estimates have multiples of 100,000 of civilians killed under our weapons systems, including the eviction of millions, countless other violent societal insurrections.
    Why people continue to seperate our genocidal, horrific overseas projects, from academic consideration given to the poor-folk occupying the houses that need to be stolen – this must be evidence of mind control. Civilians who are obliterated to control wealth are never given much of a voice. During the entire housing fraud, rarely are victims ever given much of a voice. They are corralled, marginalized, sometimes arrested and hope to be pushed away, and forgotten.

    1. Carla

      “During the entire housing fraud, rarely are victims ever given much of a voice. They are corralled, marginalized, sometimes arrested and hope to be pushed away, and forgotten.”

      And here’s the thing: except for the top 1/10th of 1 percent, we are ALL victims. It’s our neighborhoods, our communities, and our country that have been stolen from us by the elite-of-the-elite.

  16. BenE

    “the Bloomberg article goes on to note the Federal Reserve reports the number of 29-34 year old’s who qualified for a first mortgage declined from 17 percent ten years ago to 9 percent in 2009-2010”

    That is because houses are still too pricey for us 29-34 and low interest rates aren’t helping us at all!

    Here is an interesting fact: My house whenever I can afford it, will _not_ be the most expensive thing I will have to buy in my life. My retirement pension is. With lower interest rates, the expected cost of securing a pension goes up steeply and there is much less money left for everything else including houses.

    All the the news article I read on the subject of house prices assume that low interest rates prop up prices since they allow for cheaper financing, lower mortgage payments. However, as a 30yo who would like to one day be a homeowner, this is not the effect low interest rates have on my budget.

    Low interest rates correlate with low expected returns on investments making it much more difficult to save for retirement.

    I decided to try to quantify the effects of low returns on my budget:

    I calculated that if we managed to get 4% real returns on our savings, which is what most online savings calculators assume by default and about what the previous generation got, we would need to save 23% of our income to maintain standards of living after retirement (This includes home equity and what the government saves on our behalf).

    If real returns were 3%, we would need to save 27% of our income, if they were 2%, we would need to save 35% and 1% would require saving 42%. This assumes a saving period from the age of 30 to 60 and retirement from 60 to 90. This is somewhat optimistic but with two equal periods of 30 years, it makes one data-point easy to calculate: With 0% real returns, we would spend half the money before retirement and half after so we’d have to save 50% of our income.

    Real returns going down from 4% to 2%, increases the amount we need to save by 12% of our income. This means we have this much less money to put on housing and other things. For example, if our after tax household income was $50 000. We would need to save an additional $500 a month ($6000 a year).

    Is it even possible nowadays to get a safe 2% real (~4% nominal) return ? The investment opportunities I see are closer to 0.5% or 1%.

    Meanwhile the cost of financing a $200 000 mortgage go down by $4000 a year or $333 per month when mortgage rates go down by 2%.

    If I bought the same house when returns and mortgage rates both went lower by 2%, I would need to find an additional $166 per month ($2000/year) to keep my retirement savings on schedule. If I decided to recoup this $166 per month by buying a less expensive house, at 4% interest, it would have to be $50 000 cheaper.

    I realize that expected returns and mortgage rates don’t necessarily move in sync and it may be that mortgage rates have bigger downward moves than expected returns but this still all makes me uncertain about my ability to spend on houses while saving for retirement. I guess that worst case scenario, my generation will have to work till 65 or 70.

    Here is the math I did for reference:

    I : Annual Income
    S: savings ratio

    The amount saved each year of my working life is I x S
    The amount spent each year of my working life is I x (1-S)

    For example, if our household after tax income I=50k and we save 10k for retirement, S=0.20, we get to spend 40k that year.

    We would like to maintain our standards of living after retirement which means we would like the amount we spend I x (1-S) to be equal the amount of our retirement pension payments. That is, if we save 20%, (spend 40k, save 10k) we would like to get a 40k pension at retirement.

    The value of our savings at retirement should be enough to give us this annuity. To calculate S, the proportion of our income we should save to achieve this goal, I take:

    Future Value of my savings FV(I x S) = Present Value (at retirement) of the pension annuity PV(I x (1-S))

    Taking the formulas from here:
    http://en.wikipedia.org/wiki/Time_value_of_money

    I arrive at

    S = 1/( x + 1 ) where
    x=1/((1-1/(1+i)^m)/((1+i)^n – 1))

    (See https://picasaweb.google.com/lh/photo/rdEbvkw5wx78_dnqZuL4QtMTjNZETYmyPJy0liipFm0?feat=directlink )

    i is the real (above inflation) returns on my investments which, assuming I don’t take too much risk, should follow the trend of long term real interest rates.
    n is number of years we are savings
    m is number of years we plan to be retired.

    Lets say, that I start saving for retirement at 30, retire at 60 and live to 80. That’s 30 years of savings and 30 years of being retired, a somewhat optimistic scenario (n = m = 30).

    Here is the graph showing how much we should save relative to long term real returns on investments ( https://picasaweb.google.com/lh/photo/d4vj9i43MIPd8H7MqUq_BtMTjNZETYmyPJy0liipFm0?feat=directlink ).

    1. Damian

      well done – if the republicans gain complete power in the next ten years – the SS, Medicare, deductiblity for mortgage interest – all will be cut drastically – these metrics will all effect massive change in the value of housing and who qualifies

      with the student loans already in place taking a chunk out of disposable income the net available discretionary income position after retirment reserve considerations for this demographic will put the housing industry in permament downdraft – no one to pick it up as boomers go away

      couple this with jobs leaving the country – blue and white collar – and therefore average wages in permanent decline – you have a disaster on your hands

      renting will be the only option – the cracker boxes will be bulldozed sooner or later

    2. Damian

      Ben should change a few assumptions to your calculations –

      first life expectancy – your assumption at 80 is way low – assuming good DNA you have a real shot at 100+

      spending down the future value to zero from age 60 leaves you nothing beyond 80

      i would use 70 years old to start drawdown and 110 – to be safe – as terminal point

      given cost of utilities i think the overhead by that time will be much much higher regardless of health care cost/issues – i think that if they do away with SS, Medicare etc – then there will be accelerating death rates – country doesnt need 160,000,000 – so they will be murdered by neglect – the PLAN – in that event average wages will go up significantly – say double or more and that is the way you get out of the problem with the numbers not working at $50,000 – its the only solution

      the road to serfdom !

    3. John Regan

      Ben: Very insightful. It’s important to bear in mind that there are generational differences and we don’t hear the concerns of young adults often enough. You are quite right about the impact of low interest rates.

      I would recommend to you that you consider thinking about savings and interest and “money” in a different way. You might try a few articles by Michael Hudson where he astutely disparages the common notion of “the miracle of compound interest”. Agree or not it’s a fresh perspective.

      Hudson’s blog is linked to mine, and while you’re over there, if you go, you might also take a look at these:

      http://strikelawyer.wordpress.com/2011/12/27/saving-the-world-revised-edition-part-ii/

      http://strikelawyer.wordpress.com/2011/12/27/saving-the-world-revised-edition-part-iii/

  17. Sam Sqwatch

    Let’s get housing prices down to where they were 12 years ago, support Judicial modification of sharked loans. Simple, clean and effective. Like a wooden stake right into the heart of the Owner/Ruler undead.

  18. billwilson

    Couple of points.

    1. Lower housing costs are good for the long term health of the economy (jobs). Because people spend so much money on housing (40%?), the lower this number becomes the less they need in wages (compared to the theoretical overseas worker) – and with housing costs in many countries still very high (want to buy a flat in Beijing, or shenzen or…), there is a potential advantage for America, because housing costs do not have to be high (lost of space … but maybe smaller, less extravagant houses).

    2. A washout is likely required. There is a lot of money waiting on the sidelines, and that is how markets work. Things have to go much lower than their actual value to entice a flood of new buyers. No one wants to buy something for what it is worth. They want a can’t lose, great deal. That is reality.

    3. The US has to stop subsidizing its housing markets (which just inflates values above where they should be) with tricks like interest deductions etc.

    4. One approach is to guarantee access to credit (through government guarantee) for those that have a 20% down payment (a very reasonable requirement) and a full time job (and a house price below the median in the area).

    5. The consumer economy is actually benefiting greatly from the hidden delayed foreclosures as homeowners stop paying their mortgages but stay in their homes (and build up their savings or keep spending more)

  19. Brooklin Bridge

    As unit supply increases, rent will fall. This will result in additional waves of foreclosures as those who bought at or near the top of the market progressively fail to tread water.

  20. Abelenkpe

    Back in 1999 homes in my LA neighborhood went for around 300,000. Today they are around 1.2 million and far from what can be supported by local incomes without creative credit. While I favor jubilee for indebted homeowners and students it would not completely solve the problem. Since the credit is gone and incomes are unstable home prices still need to go down here. But that may not be true for other places.

    1. John Regan

      You have to remember a jubilee will have far reaching effects. You can’t just piecemeal cancel some debts and not others. At the same time, the money itself is debt. You have to exempt only those things which constitute popularly recognized money – that is, currency and bank accounts – and dump everything else. All derivatives, all pensions, social security, everything else would be gone. But everyone would be solvent. No one would be facing foreclosure or eviction. Everyone would have the same number of dollars they had before. Check out the links to my blog in the first comment to this post. You might find them interesting.

  21. Kathi Berke

    Two questions:

    Did the “too big to fails” ever mark-to-market their previous MBSs (2000-2008 or so), the ones on their books and the ones they exchanged with the Treasury for newly minted dollars during their corporate welfare bailout? And probably the discount window is still open.

    Has the MERS-enabled “clouded title” issue been resolved?

  22. Guy_Fawkes

    I would like to see people demanding escrow to do things the “old, traditional way” prior to reconveyance, the bank should provide the note to extinguish. The seller can demand this of escrow.

    And the same goes for the buyer….the buyer should provide a real estate contract only with the clause that the title is clear….and demand a quiet title agreement prior to the reconveyance.

    This is the ONLY way titles are going to mean anything anymore.

    1. Lidia

      Guy, I am starting to look for a home to buy. Can you explain a little more about how the escrow works that you are talking about, and how one goes about getting a “quiet title”? Step by step… or point me to a good online resource?

      I see many listings which will only supply a Limited Warranty deed.

      What if no-one will provide a clear title?

      Will avoiding houses which have been mortgaged in the last 10 years help, or have older loans been securitized as well?

    2. R Foreman

      So if you and I do a transaction together, solely for the purpose of smoking out the title (or lack thereof), with a resulting free title being a high likelihood, does that mean we’re in business together ? Just askin’… sounds like a great money-maker… just have to pay some attorney fees.

      Should do it while houses still retain a little value though. I suspect prices will continue falling until they reach a natural level where the masses can buy with cash.

  23. rps

    “Bloomberg reports that student-loan debt is approaching a crippling $1 trillion, preventing young people from qualifying for mortgages.”

    This is singularly, the main point of offensive acts perpetrated upon a generation of US citizens. In fact, this is the Issue. Graduates are gang-chained to the unconscionable student debt, and to put it bluntly, being financially raped by the government banking student loan racket. To add to this egregious dilemma is the rent market. The landlords are taking advantage of this generation not qualifying for a mortgage, and are gang-raping them on Rent without utilities. Home prices are in free fall while rents are in the stratosphere. Monthly rents surpassed a monthly mortgage payment five years ago. This generation of graduates are the new financial slaves without due process and recourse. Their right to Own property has been deliberately stolen by government and private banking. That’s the point.

    “Despotic government supports itself by abject civilization, in which debasement of the human mind, and wretchedness in the mass of the people, are the chief criterions. Such governments consider man merely as an animal; that the exercise of intellectual faculty is not his privilege; that he has nothing to do with the laws but to obey them; and they politically depend more upon breaking the spirit of the people by poverty, than they fear enraging it by desperation.” Thomas Paine, Agrarian Justice

  24. DL Clem

    Here’s my take on the grand scheme of things. In 2003 I refinanced a first and second mortgage into one affordable loan (or so I thought) without borrowing over 82% of the LTV. In 2005, my lender disolved its corporation but Countrywide kept right on collecting my mortgage payments as the servicer of my original lender.

    In late 2006 after Countrywide manuvered itself into a position where it thought it could foreclose on my property the battle in the courts began and that battle has been joined now by BAC as successor in interest but I’m still in my house and I paln on staying here until I clear title.

    Call me what you will but I will not pay those who do not have money invested in my home and only pretend to be the original lender. Who, by the way, collected 300% in return for the money that was created by others and used to fund my mortgage in the first place and then they just quietly disolved the corporation and faded away.

    But I wander far afield of the real issues: Why did the federal government restrict analog communications from the general public; Why is the federal government funneling all of the tax paying publics wealth into the the private sector; Why has the federal government abolished most of the constitutional protections that directly protect our citizens; Why has the federal government, recently, passed into law legislation that allows government troops to be used against U.S. Citizens and to detain those citizens without due process of law……….. And on and on and on…

    As soon as I do clear title to my home it will be sold so I can join my Brother in his mountain retreat along with the hundreds of other intellegent souls who see past the BS that has people wasting precious time dicussing such trival matters as here fill these pages.

    Good luck with your meaningless diatribe as to what will do what and to what effect will it all have… the outcome is not certain but the path we will all be forced to take is etched in the stones of D.C.

    TheGrey

  25. Jill

    There is another cost to foreclosures. I see it everywhere where I live (in Toledo). Kicking people out of their homes gets very expensive for society. People just don’t die fast enough in this town. They cost money for food, homeless shelters, health care and the like before they die. That comes to around $30,000 per person per year for social services.

    Of course, that is being reduced because our food banks and homeless shelters are running out of resources but still, it’s not chump change either. Paying for a family to stay in their home would make more economic sense than splitting everyone up into this and that homeless shelter.

    The savvy bankers should be prosecuted for their fraud. Their ill gotten gains should be clawed back. A poster above mentioned the people who bet on all this can take their losses (at least people who were given accurate financial information about the products they were sold). Law enforcement and debt forgiveness will reset the market. The govt. should put money into the economy by creating jobs that need doing–infrastructure, alternative energy, environmental clean up, health care etc. I realize this will not happen, but it is what should happen. There is no good reason why it can’t be done but there are reasons.

  26. kravitz

    The WSJ is freaking out about Schneiderman and MERS again…

    http://online.wsj.com/article/SB10001424052970204136404577211190447984890.html?mod=googlenews_wsj

    “It’s curious that Mr. Schneiderman suddenly finds evil in electronic databases, given that MERS started registering and tracking mortgages in 1997. Nor does the AG provide evidence that responsible homeowners current on their mortgage payments were improperly kicked out of homes. The MERS scare may give these AGs one more pelt on the wall, but it won’t help the housing market.”

    The NYT’s Nelson Schwartz isn’t looking for much from the settlement. But so much ink on the ‘single point of contact’ issue? Really?

    Some Doubt a Settlement Will End Mortgage Ills
    http://www.nytimes.com/2012/02/21/business/some-doubt-a-settlement-will-end-mortgage-ills.html?_r=1&hp

    And actually, I could see Shaun Donovan in drag…

    http://abigailcfield.com/?p=974

    “U.S. Housing Secretary Shaun Donovan is playing Julie the Cruise Director on the Titanic, telling everyone ‘Don’t worry, there’s no icebergs in these waters.”

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